As worker assistance dwindles, CDFIs step in to fill gap

WILMINGTON – With more than 30,000 still receiving unemployment assistance in Delaware last week, it’s a reminder that many are still struggling even as the economic impacts of the COVID-19 pandemic slowly ease amid reopening.

The August expiration of the federal government’s $600 weekly unemployment assistance and the U.S. Small Business Administration’s Paycheck Protection Program (PPP) mean that those still in need of help are finding less of it. A moratorium on evictions also doesn’t stop other bills from piling up as laid off workers find few opportunities for new work.

That leads many workers to seek loans to help make up the difference, but also puts them at risk of predatory loan practices, said Andy Posner, founder and CEO of Capital Good Fund, a community development financial institution (CDFI) that serves Delaware.

“Delaware is a state that has a particularly strong payday loan lobby and industry,” he said. “In 2018, 75,000 residents took out a payday loan or a similar type of predatory product. The average interest rate is over 500% here. You can get a payday loan as high as 3,600% in the state of Delaware.”

U.S. Sen. Chris Coons hosts a Sept. 3 web conference highlighting the work of the Capital Good Fund. | SCREENSHOT VIA COONS’ OFFICE

CDFIs are nonprofit lenders that utilize both U.S. Department of Treasury funds and private sector donations to reach distressed communities at favorable terms. They have been particularly effective in reaching minority communities and undocumented residents amid the pandemic, said U.S. Sen. Chris Coons (D-Del.), the senior Democrat on the Senate Financial Services Appropriations Subcommittee who highlighted their work in a Sept. 3 web conference.

Coons connected Posner with Discover Bank and the Longwood Foundation five years ago to bring his CDFI’s services to Delaware. Based in Rhode Island, Capital Good Fund also has locations in Florida, Illinois, and Massachusetts – and plans to expand into Texas this year.

With pre-pandemic studies showing that more than half of all Americans had no real financial savings, Coons noted that meant many were now suffering with unexpected expenses, including funeral arrangements. Coupled with exploding unemployment tied to the economic shutdown necessary to stem the transmission of the virus, the cycle will perpetuate a “debt trap” of borrowing, lending, and paying exorbitant rates for millions, he added.

During his time as New Castle County executive and working with the I Have A Dream foundation, Coons said he has seen how many working Delawareans pay “outrageous rates” in payday lending, rent-to-own agreements or car title loans. That’s where CDFIs can help.

 Since the COVID-19 crisis began, Capital Good Fund has financed over 600 COVID-19 Crisis Relief Loans of $300 to $1,500 with a 5% annual interest rate and a three-month deferment period. Those loans can pay for rent, utilities, car repairs and payments, food, clothing and more.

“We are prepared to do hundreds if not thousands of loans in Delaware,” Posner said of his nonprofit that has completed about 5,500 loans worth $11 million nationwide.

Ydenise Franciso, a customer service representative for Capital Good Fund, recounted a recent client who was evicted and separated from her husband during the pandemic, forcing her to live out of her car with her children. After being turned down for loans elsewhere, Capital Good Fund was able to back a loan and she was able to rent an apartment for her family.

“It was tears and joy,” she said. “I have been there and to have someone give you a chance when no one else would is the best feeling in the world.”

When asked what Congress could do to help stem predatory loan practices and ease the burden on CDFIs, Coons said that he was disappointed that the Trump administration’s Consumer Financial Protection Bureau rescinded a rule proposed during the Obama administration to try to rein in such lending terms by requiring an affordability test before a loan is signed. He called it a “political” action that could be reversed under a new administration.

“One of the points that the folks who represent payday lenders argue to either state legislatures or to members of Congress, is that they make loans to people who have no other alternative,” Coons said. “What Capital Good Fund is doing is demonstrating that it is possible to have safe, sound, and well-capitalized alternatives.”

By Jacob Owens

jowens@delawarebusinesstimes.com